Supporting Organizations An Alternative to a Private Foundation

In determining the best method of charitable giving, many individuals consider establishing a private foundation or a Donor Advised Fund in order to maximize tax benefits and donor intent. However, it may also be beneficial to consider establishing a Supporting Organization.

A Supporting Organization is a tax concept that allows a private foundation to enjoy the benefits of a public foundation. A Supporting Organization organizes itself to be operated exclusively to carry out the purposes of a public charity, and the sponsoring public charity agrees in turn to have the supporting organization administer a program it would otherwise wish to carry on itself. A Supporting Organization has the ability to control the timing of the charitable tax deduction and the timing and amount of grants, but is not subject to the same restrictions and excise taxes which burden private foundations (The IRS tax code, 509c3, qualifies the Supporting Organization). Many donors are drawn to this type of organization for these reasons, as well as for the close relationship it affords with one or more chosen charitable organizations.

Possible Structures Involving a Supporting Organization

A supporting organization may be used in many different ways. The most common arrangement is to have the Supporting Organization benefit a specified charitable organization, and make distributions of its income to support that organization’s activities. A Supporting Organization may also be set up to support a community foundation, which allocates charitable resources to numerous community organizations. In this way, a supporting organization may indirectly support a number of different charities without including them in its organizational documents. In order for the Supporting Organization to exercise greater control over when and to which organizations the community foundation makes distributions, a supporting organization may also be established to support a Donor Advised Fund operated by the community foundation. The Supporting Organization establishes the fund through an initial grant to the community foundation and then may make periodic recommendations as to the distributions of the funds. The community foundation will then make distributions to various charities in the name of the supporting organization. Although the recommendations of the supporting organization are not legally binding, this arrangement affords the organization far greater input into the operation of the fund.

How Does A Supporting Organization Work?

To become a Supporting Organization there are four organizational tests to be met by the Supporting Organization.

1. Its Certificate of Incorporation must limit its purpose to charitable and educational purposes. 2. Its Certificate cannot authorize it to engage in any purpose other than the charitable and educational purposes of the public charity. 3. Its Certificate must state that it is organized and operated exclusively for the benefit of the public charity. 4. Its Certificate must not empower the fund to pay over its income or perform the services of any organization other than the public charity. 5. The Supporting Organization must not be controlled by one or more disqualified persons. Generally, disqualified persons include: a. Substantial contributors (persons who contribute more than $5,000); b. Foundation managers; c. A member of the family of the substantial contributor or a foundation manager.

The Community Foundation undertakes to control the activities of the supporting foundation by appointing a majority of the Board of Directors of the supporting foundation. The Board may include substantial contributors, foundation managers or members of the families of each, but they must not control the organization.

The Supporting Organization regulations deal with structure rather than financial matters. The IRS wants to force the parent organization to consider the Supporting Organization as an important source of revenue and thus to lend public scrutiny to the efforts of that “supporting institution" in order to attain public status.

List of Services Provided for Supporting Organizations

1. Administer grants  Obtain 501(c)(3) status from grantee organization to determine if they qualify for grants  Issue grant checks to qualifying organizations  Provide overview of community initiatives and issues and guidance on nonprofits  Assistance in the preparation of grant guidelines and criteria and the application procedures.  Conduct post grant evaluations.  Tracking of grants.  Preparation of acceptance and denial letters.  Preparation of docket materials and agendas.  Preparation of press releases and distribution to media sources.

2. Administer Foundation's checking account  Reconcile account on a monthly basis  Transfer funds from trust to cover grants and administrative expenses  Update checkbook register for deposits and checks issued.  Order supply items as needed for checks, letterhead stationery and envelopes

3. Investment, management, accounting, and reporting  General financial oversight  Reconcile bank and investment portfolio for interest, dividends, realized gains and losses, and unrealized gains and losses  Prepare monthly accounting entries and post of general ledger  Prepare fund and financial statements  Assist with and compile financial information for annual audit  Opportunity for inclusion of the Supporting Organization in an annual, independent audit of the Foundation (incremental fee).  Coordinate and assist with and compile information or preparation of Audit and Form 990 o Return of Organization Exempt from Income Tax  State compliance requirements by preparing and remitting payment for annual Wisconsin o Nonstock Corporation Annual Report  Obtain coverage under our existing insurance policy for Directors and Officer liability coverage  Calculate Greater Green Bay Community Foundation's administrative fee  Remit payment for other administrative expenses such as legal fees, etc.

4. Administrative Support  Records processing, maintenance, and data input  Mail and telephone services (handling inquiries from public/nonprofit organizations)  Scheduling meetings

5. Board Coordination  Planning board meetings  Preparing agendas  Making presentations  Keeping minutes  Circulating memos  Preparing and disseminating unanimous consent resolutions  Training and development of board members